Green v BDO Stoy Hayward Llp

An application under Insolvency Act 1986, s.236 requires the liquidator to show a reasonable requirement for the documents or information sought. The court has an unfettered discretion and must balance the value of the material to the winding-up against the burden imposed on the respondent.

A liquidator’s view is normally given substantial weight, but a broad request made after a lengthy delay, particularly where the respondent’s involvement was limited, may require some explanation of the investigations undertaken, the gaps remaining and why the documents are needed. Mere assertion that the material is required to investigate the company’s affairs is insufficient in such circumstances.

The liquidator of XL Communications Group Plc appealed against the District Judge’s dismissal of an application under Insolvency Act 1986, s.236. He sought production of BDO’s audit and working papers, although BDO had resigned as the company’s auditors in July 1997 and its last material involvement had been in 1996.

The application was made more than seven years after the company entered compulsory liquidation and sought a very wide range of documents and information. The District Judge held that the liquidator had not established a reasonable requirement for the material. The central issue was whether the District Judge had erred in principle or exercised his discretion wrongly.

1. Appeal dismissed. The District Judge had applied the correct principles and was entitled to refuse the application.
2. The jurisdiction under Insolvency Act 1986, s.236 assists a liquidator to discover the circumstances connected with the company’s affairs, including information needed to investigate possible claims and recover assets. It extends beyond reconstituting the company’s state of knowledge to documents which the liquidator may reasonably require in carrying out his functions, as explained in British and Commonwealth Holdings (No. 2) [1992] AC 426.
3. The liquidator must establish a reasonable requirement for the documents. His views normally carry considerable weight, but the court retains an unfettered discretion and must balance the importance of the material against any unnecessary or unreasonable burden on the respondent. The principles stated in Sasea Finance Ltd (Joint Liquidators) v KPMG [1998] BCC 216 were accepted.
4. The District Judge was entitled to require some explanation because the liquidation was longstanding, BDO’s involvement had been limited, and the request was extremely broad. The liquidator had not explained what investigations had been undertaken, what they had revealed, what gaps remained, or why the requested documents were required. Stating the general functions of a liquidator did not establish the necessary requirement.
5. The passage of time was a relevant part of the factual matrix, rather than an additional legal burden or an absolute bar. The District Judge had considered the status of BDO as former auditors, the nature of the request, the likely cost and burden, and the fact that inspection rather than oral examination was sought.

The District Judge had not erred in principle or exercised his discretion unreasonably. The appeal was dismissed.

• High Court (Chancery Division): On 2 November 2005, the appeal from the District Judge’s decision of 16 June 2005 was dismissed.